Wealth Building — A Doubling Game

Learn how to double your money with time

Photo by Morgan Housel on Unsplash

Wealth building is defined simply as investing your money into assets that appreciate over time.

When it comes to wealth building, three important factors are crucial:

• The rate of return
• The initial investment amount
• The length of the runway

To illustrate how these factors could impact wealth building, let us consider an example.

The rate of return: According to the rule of 72, an investment that produces a rate of return of 10% (annualized) will take about 7 years to double. Similarly, an investment that produces a rate of return of 7% will take 10 years to double.

Note: The rule of 72 states that the time needed to double an investment is given by 72 divided by the rate of return.

• If the rate of return is 10%, it will take 72/10 = 7.2 years to double.
• If the rate of return is 7%, it will take 72/7 = 10.3 years to double.

The initial investment amount: How long it takes you to build wealth depends on the initial amount of money that you have available. Let’s assume John and Peter are two investors. John and Peter both invest in an S&P 500 index fund, and lets assume…